What Changed - Compensation Thresholds

Compensation thresholds for Key Employees and Highly Compensated Employees have changed for the first time since 2015! These cost-of-living updates to income limits mean that an employee has to make $5,000 more to be considered a Highly-Compensated or Key Employee.

This means potentially substantial changes to your ACP, ADP, or Top-Heavy nondiscrimination tests. Employees who counted as HCE’s the tax year before may actually be NHCE’s for your future testing.

What Didn't Change

Alas, the 2019 cost-of-living change didn’t impact all savings. Catch-up contribution limits for individuals age 50 and older who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan are unchanged, at $1,000 for IRAs and $6,000 for workplace retirement accounts.

Table of Limitations on Defined Contribution Plans

Adjusting To The Change

Thankfully, this cost-of-living change doesn’t mean tons of work for you, but, nevertheless, there are a few actions you should take to maintain the health of your qualified retirement plan and the happiness of your employees.

Here are some things to consider when adjusting to the new 2019 401(k) contribution limits:

Notifying Employees

Let's face it, even though people care (and worry) about their retirement savings, most employees aren’t exactly following the IRS on Twitter. So unless you tell them, they might not know about the opportunity for increased deferrals.

Naturally, employees should be aware of the changes to annual contribution limits and what it means for them (and their savings). As the plan administrator, it’s your duty to make them aware of changes that will impact their retirement savings.

Here’s a quick email template to help you share the good news:

Hello,

This is a message with important information about your 401(k) retirement benefit plan.

The Treasury Department has recently adjusted 401(k) contribution limits, meaning you can save more for retirement!

Here’s what changed:
Annual 401(k) contribution limits have been raised for 2019. You may now contribute a maximum of $19,000 to workplace retirement plans (a $500 cost-of-living increase).

If you have a traditional IRA or Roth IRA you’ll be happy to know these have also been given a $500 boost, bringing the maximum contribution to $6,000.

What this means for you:
You can change your payroll deferral amounts to increase your 401(k) contributions - meaning you save more for retirement when it’s most important.

Simple instructions for changing your deferral rate:

[Ensure that the instructions below match with those for your business. These are general instructions.]

To increase your deferral rate, simply log into [YOUR 401(K) PROVIDER] and enter in your new deferral rate. Please send a note to [PAYROLL OR HR ADMINISTRATOR] when you do so.

Once you’ve made the update and alerted [PAYROLL OR HR ADMINISTRATOR], your rate will be updated and you paycheck amounts will change accordingly to account for the increased withholdings.

Happy saving!

*See section below about employees with multiple retirement accounts.

Changing Contribution Amounts

Hopefully, your employees will want to take advantage of these contribution increases and put more into their retirement accounts. To help your employees, make it easy and simple for them to change payroll deferral rates.

Ideally, this easy:

In addition to providing instructions in your contribution limit update email (like we did in the template above), make sure that they receive a confirmation email which restates the change. It’s also not a bad idea to host a presentation or meeting to go over the changes and answer any questions in real time. It can save a ton of emails later.

An easy deferral-change process means employees are more likely to make changes, contributing more to the plan, and saving more for their golden years - which is everyone’s goal here.

Tips To Keep Your Plan Compliant

Prevent Over-Contribution

Over-contribution means having to deal with a long series of headaches to make up for the mistake. This usually results in unhappiness all around. Employees face a potentially significant financial inconvenience, and as plan administrator, it’s mostly your problem to deal with.

Careful administration can prevent accidental over-contribution. That means serious care has to be taken with calculating and setting up payroll deferrals.

Warn Employees With Multiple Plans

Employees with multiple retirement accounts can be more vulnerable to accidental over-contribution. The annual 401(k) deductible contribution limits apply to their total contributions to all 401(k) plans.

Employees with multiple plans will have to take more care to distribute the contributions without going over the annual limit. Consider alerting your employees to this when you send the IRS limit increase notification message.

Look to Your Payroll Processes

Payroll integration can save you from some headaches when the annual audit rolls around, but it’s important to be aware that not all payroll processes are created equal. Some integrated payroll systems can accidentally accept participant contributions that actually exceed the annual plan limit, which means the headaches don’t go away, they get worse.

That’s where validation checks come in.

Payroll integrations that involve validation checks will prevent over-contribution from happening in the first place, meaning you don’t have to spend your valuable time on fixing mistakes months down the line.

Conclusion

It’s not often that bureaucrats are the bearers of good news, so why not enjoy it?

Contribution limit increases are never a bad thing. Even if the average employee at your company isn’t maxing out their deferrals, it’s important that the cost-of-living adjustment has been made.

As we’ve said, that’s all good news. The only downside is that, well, changing deferrals may mean more work for you. If you’re drowning in deferral change requests, or any of the other burdensome work of 401(k) administration, ForUsAll can help!

Our automated 401(k) administration & compliance solution synchronizes your payroll and recordkeeping systems, so you don’t have to spend any time depositing contributions, updating deferral rates, or any of that other 401(k) busywork.

The best part?

ForUsAll provides a 3(16) fiduciary that takes on the legal responsibility for plan administration.